Liquidity generated by heterogeneous beliefs and costly estimations
We study the liquidity, de ned as the size of the trading volume, in a situation where an in nite number of agents with heterogeneous beliefs reach a trade-o between the cost of a precise estimation (variable depending on the agent) and the expected wealth from trading. The \true" asset price is not known and the market price is set at a level that clears the market. We show that, under some technical assumptions, the model has natural properties such as monotony of supply and demand functions with respect to the price, existence of an equilibrium and monotony with respect to the marginal cost of information. We also situate our approach within the Mean Field Games (MFG) framework of Lions and Lasry which allows to obtain an interpretation as a limit of Nash equilibrium for an in nite number of agents.
|Date of creation:||01 Jun 2012|
|Publication status:||Published in Networks and Heterogeneous Media, AIMS-American Institute of Mathematical Sciences, 2012, 7 (2), pp.349 - 361. 〈10.3934/nhm.2012.7.349〉|
|Note:||View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-00638966v5|
|Contact details of provider:|| Web page: https://hal.archives-ouvertes.fr/|
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- Jouini, Elyes & Napp, Clotilde, 2006. "Heterogeneous beliefs and asset pricing in discrete time: An analysis of pessimism and doubt," Journal of Economic Dynamics and Control, Elsevier, vol. 30(7), pages 1233-1260, July.
- Jouini, E. & Napp, C., 2006. "Aggregation of heterogeneous beliefs," Journal of Mathematical Economics, Elsevier, vol. 42(6), pages 752-770, September.
- Marco Avellaneda & Sasha Stoikov, 2008. "High-frequency trading in a limit order book," Quantitative Finance, Taylor & Francis Journals, vol. 8(3), pages 217-224.
- repec:dau:papers:123456789/341 is not listed on IDEAS
- repec:dau:papers:123456789/80 is not listed on IDEAS
- Michael Gallmeyer & Burton Hollifield, 2008. "An Examination of Heterogeneous Beliefs with a Short-Sale Constraint in a Dynamic Economy," Review of Finance, European Finance Association, vol. 12(2), pages 323-364.
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